David Jones profits drop 40%

19 Sep 2012, 4:37 pm   -   Source: AAP
Department store chain David Jones reported a 39.9 per cent fall in full year profit. (AAP)

Department store chain David Jones reported a 39.9 per cent fall in full year profit. (AAP)

David Jones has announced a 40% fall in profit and a new valuation of its prime real estate assets, which it insists it doesn't want to sell.

Troubled retailer David Jones insists it has no plans to sell its flagship department stores, despite having its four premium properties in central Sydney and Melbourne valued by experts.

David Jones revealed the four stores - on Elizabeth and Market streets in Sydney and Melbourne's Bourke Street - were worth more than $600 million as it posted a 39.9 per cent plunge in full year profit.

Chief executive Paul Zahra said David Jones had contracted an independent property consultant to determine the value of its four premium sites in Melbourne and Sydney.

But he insisted the retailer did not intend to sell them.

"We didn't do the work to sell the properties, that wasn't our intention," he told reporters on Wednesday.

"We have no plans to sell the properties.

"What we wanted to do was actually get the properties appropriately valued because there was such a wide range in the market about what the properties were worth."

Assuming a rental price of $39 million per year for all four properties, the potential worth of the properties was $612 million, David Jones said.

Their value could rise with potential developments, which David Jones had identified as adding additional floors of residential units or office space to the Elizabeth Street and Bourke Street stores and a residential or commercial tower to the Market Street site.

City Index chief analyst Peter Esho said despite Mr Zahra's denials, he believed that David Jones was trying to sell the Sydney and Melbourne CBD properties.

He said selling the flagship stores at a good price would not only wipe out David Jones' debt but enable the retailer to acquire other businesses.

"I think they are trying to sell them without putting a for sale sign on them," he said.

"They're talking them up and what they're trying to do is create a narrative around David Jones that David Jones is not just a retail operation."

Speculation about the future of the sites came as David Jones reported its net profit slumped to $101.1 million in the year to July 28, down from $168.1 million in 2010/11.

Total sales fell 4.8 per cent to $1.87 billion, and the costs of doing business rose due to investments in customer service and online retail.

Mr Zahra said the profit result was in line with the guidance David Jones provided in March and reflected the tough trading conditions.

But he said sales had improved quarter on quarter and were continuing to grow in the first few weeks of fiscal 2013.

Mr Zahra said unlike David Jones' rival Myer, it did not believe the recent improvements in sales was due to the federal government's carbon tax compensation payouts.

But like Myer, David Jones did not give guidance for its earnings in 2013, citing the uncertain conditions ahead.

Shares in David Jones closed one cent lower at $2.26.

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